Shares of common stock convey an ownership interest in a corporation and can be a valuable form of currency for a small business. If your business has little cash or wants to conserve money, you can trade shares of common stock for land or other assets. In this type of deal, you take ownership of the land and the seller gets a stake in your company. Because no cash is used and your shares are not publicly traded, determining the appropriate transaction value to account for in your records can be tricky.

Transaction Value

Generally accepted accounting principles, or GAAP, require a business to record an exchange of stock for property at the fair, or market, value of the transaction. In this case, you can use either the market value of the common stock or the market value of the land. The value you choose should be the one that has the best evidence to support it.

Transaction Value Based on Stock

To value the deal based on your common stock, your shares should have a clearly established price. The value of the land transaction would equal the share price times the number of shares exchanged. In a private company, your shares might have an established price only if you recently issued shares for cash. For example, assume your small business issued shares to investors last month for $10 per share and, today, exchanged 50,000 shares for land. The value of the land transaction would be $500,000, or 50,000 times $10.

Value Based on Land

When your common stock lacks an established price, you can value the transaction based on the land’s value. If you acquire land that is listed on the market and that attracts multiple bidders, you might base the value on the amount you would have paid in cash. If you obtain unlisted land directly from the seller, you might use a value determined by a real estate appraiser instead. For example, assume you get land directly from one of your suppliers. In this case, a real estate appraisal might provide the most accurate value.

Recording the Land

Booking the transaction in your records requires an adjustment to three accounts. To record the land, debit the transaction’s value to the land account. A debit increases this account, which is an asset on your balance sheet. For instance, assume a land appraisal of $600,000 is the most accurate transaction value. Debit $600,000 to the land account in your records.

Recording Par Value

The par value of stock is an accounting figure that is established when you incorporate your business. To figure the par value of stock issued for land, multiply the par value per share by the number of shares issued. Credit your result to the common stock account. A credit increases this account, which is a stockholders’ equity account on the balance sheet. Using the previous example, assume you exchanged 100,000 shares with a par value of $1 per share for the land. You would credit $100,000 to the common stock account.

Recording Additional Paid-in Capital

Additional paid-in capital is the value of the shares that exceeds their par value. To figure this amount, subtract the par value you credited to the common stock account from the transaction’s value. Credit your result to the “paid-in capital in excess of par” account. A credit increases this account, which is also an equity account. Completing the previous example, subtract $100,000 from $600,000 to get $500,000. Credit $500,000 to “paid-in capital in excess of par.”